Netflix’s streaming service exploded when it figured out a big weak spot in the TV business

Netflix pioneered binge-watching, and it did so by identifying an “inefficiency” in the TV market, according to CEO Reed Hastings.

When Netflix first entered into the streaming market in 2007, the company was focused on movies. But it found the system of movie distribution to be ill suited for its needs,according to The New York Times.

Netflix wouldn’t get its hands on a movie until about a year after it was in theaters, and then it only snagged the rights for a measly 12 to 18 months. After that, it went to “free TV” for a whopping 7-8 years. Customers hated the fact that the catalog seems to be constantly shifting.

That’s why Netflix decided to pivot more toward TV, according to the Times. TV reruns of “self-contained” shows, especially half-hour sitcoms like “Friends” or “Seinfeld,” were historically popular because they could be watched out of order – whenever you happened to tune in. Prestige narrative dramas like “Mad Men” are much harder to consume that way, and so were largely ignored by companies in the rerun market.

Netflix saw this as an “inefficiency” in the market, Hastings told the Times. No one was wringing rerun value out of those shows, and Netflix’s format was perfect for it. With Netflix, you could watch two or three episodes at once, on-demand, and then pick up where you left off in the narrative the next time. People loved watching shows that way, and it lead to the cultural force we now call “binge-watching.”

At the time, networks saw this as a win-win, since the binge-watching also boosted interest for the current season of the show, sometimes even catapulting it into the national pop culture conversation.Michael Nathanson, an analyst at MoffettNathanson, told the Times that “‘Breaking Bad’ was 10 times more popular once it started streaming on Netflix.”

But though Netflix had pioneered the binge, the company knew its relationship with networks wouldn’t stay the same forever.

“We could see that eventually AMC was going to be able to do its own on-demand streaming,” Hastings told the Times. “Or FX. We knew there was no long-term business in being a rerun company, just as we knew there was no long-term business in being a DVD-rental company.”

That’s why Netflix has pivoted yet again, making the aggressive move into producing its own original content starting in 2013. Netflix executives routinely characterize originals as the future of the company, and as Netflix’s best investment moving forward.